PETALING JAYA: Led by a recovery in gaming and motor dealership revenue, Berjaya Sports Toto Bhd (BToto) is expected to see a sharp improvement in earnings for the three months to September 2020.
The numbers forecast operator (NFO), which is also involved in the automotive business, has seen ticket sales gradually reverting close to pre-Covid-19 levels, according to Public Investment Bank (PIB).
In addition, sales of high-end vehicles in the United Kingdom have also rebounded, the brokerage said, citing a recent meeting with BToto’s management.
“For the coming quarter, earnings are expected to improve sharply from a net loss of RM43.3mil in the fourth quarter of the financial year ended June 30,2020, largely due to the recovery in gaming and motor dealership revenue, ” PIB said.
It noted BToto’s ticket sales have recovered to almost 85% of the pre-movement control order (MCO) levels since the reopening of its operations on June 17 due to higher footfall.
“Its motor dealership business in the UK has also resumed, delivering stronger sales as demand for high-end vehicles is largely unaffected by the impact of the economic slowdown caused by the pandemic, ” PIB added.
PIB has maintained its outperform rating on BToto with a target price of RM2.60.
“We reiterate our view that the numbers forecasting business is relatively more resilient and should revert to its pre-Covid-19 levels quicker than the casino business, ” the brokerage said.
However, it said, during the MCO period, illegal online operators regained some lost market share after an aggressive clampdown of their operations by the authorities in 2019.
“It remains to be seen whether BToto could reclaim sales from the illegal players, given that patrons may continue to bet illegally online for fear of visiting the outlets with the pandemic still persisting, ” PIB said.
The brokerage said the inability to regain market share should illegal operators continue to flourish and the reintroduction of the MCO should there be a second wave of infections, were risks that could derail BToto’s recovery.
“The recent jump in new Covid-19 cases is predominantly located in Sabah. Should there be a lockdown in the state, the impact on the group is expected to be minimal, as Sabah makes up less than 4% of total NFO outlets, ” it said.As for BToto’s operations in the Philippines, PIB noted there was no further update on the tender exercise with the licence being renewed on a monthly basis until the bidding for new concession reopens.
“Should it fail to obtain the new concession for the Philippines’ lottery business, the downside to earnings is about 10%, ” it said.
“However, BToto’s dividends should remain unaffected as it does not depend on the Philippines for free cashflow, ” it added.
The brokerage has projected that BToto would rake in a net profit of RM238mil, up from RM134.mil.
Assuming a dividend payout ratio of 80%, dividend yield would remain attractive at 7%.